The battle lines have been drawn: for the next fortnight, Bonhams and Sotheby's will vie for supremacy in the realm of decorative arts. Decorative art - it is now considered unattractive to call it "craft" - is enjoying a welcome revival: gone is the boring, brown basket-weaving image, replaced by blazing colours and bold contours, constructed in a multitude of media. Bonhams and Sotheby's are making the most of this trend, and looking to update their own somewhat dusty image in the process.

Both auction houses are staging exhibitions of decorative art. Instead of being auctioned, objects will be sold at a fixed price, set by the artist - with a modest mark-up from the sale-room. The selling exhibition benefits customers - mainly talent-spotters and entrepreneurs looking for tomorrow's antiques, along with young professionals looking to furnish their new houses - because they know the price they will be paying. It also helps young artists, who get a lucrative platform to show their work, and enjoy the kudos of exhibiting alongside more established artists.

Bonhams leads the way in the patronage of contemporary decorative art. It is now on its sixth Decorative Arts Today show. "There is an opportunity to find a young designer's work and make an investment," says Petra Levi, curator of the Bonhams exhibition and founder of the charity New Designers in Business. "Whatever you pay for it, the value will have almost certainly increased by the next sale."

The Bonhams show includes 1,000 pieces by more than 100 British designers, newcomers and old-timers. Prices range from pounds 10 to pounds 48,000. Much of the work is furniture, some by distinguished names such as Ron Arad - whose work is already being auctioned at 20th-century design sales - and the internationally renowned designer and teacher John Makepeace. Among the other pieces are metalwork, ceramics, jewellery, lighting and some stunning glass.

Hanging on the coat tails of Bonhams, though equally impressive, is Sotheby's second Contemporary Decorative Arts exhibition. Curating its show is Janice Blackburn, a fervent crusader for contemporary decorative arts, who has just been announced as the winner of the 1998 Montblanc de la Culture award - a prize that recognises patrons of the arts. Also a private collector, Blackburn feels she is "moving Sotheby's into the 20th century and attracting younger customers, while letting the public see what is best in British craft and design".

The first Sotheby's show was a glamorous affair with appearances from Peter Mandelson, Richard Rogers and Sixties icon Anita Pallenberg. And many of last year's exhibitors have found success - notably Emily Bates, who attracted attention with her garments woven with human hair. She has since won a Scottish Arts Council award which allowed her a year's residency in Amsterdam. This year's exhibition is considerably bigger, with 85 artists showing glass, jewellery, ceramics, furniture, textiles, silver and metalwork. Among the big names are ceramicist Bruce McLean and sculptor Danny Lane, both of whom have work in the Victoria & Albert Museum.

As at the Bonhams sale, a proportion of the exhibitors are unknown graduates. Determined to show new work, curators from both salerooms have been laboriously sifting through numerous regional and graduate exhibitions over the past year to find suitable candidates, with precise criteria in mind. "There has to be fine craftsmanship, and what we consider to be value for money," says Petra Levi.

This has resulted in a remarkable diversity of style, blurring the boundaries of craft, art and design. The majority of artists attach great importance to function as well as form - an auspicious blend in an age where people are showing more conviction in defining their own interiors. Lin Cheung's picnic tool lays no claim to elevated explanation yet remains a beautifully finished piece of gadgetry, while Hannah Woodhouse's hybrid of lighting and sculpture is a spooky one - her standing lamp cutting an imposing figure, clad in white.

Amid the functional is the absurd. Deborah Schlamp's satsuma-holder arbitrarily uses fruit as an pretext to create something wacky. Several of the outlandish designs are more practical than they might appear.

As previous exhibitions have shown, in investment terms, the more eccentric the design, the safer the buy. And Ms Blackburn is certainly abiding by her word: "There'll be no baskets in my sale!"

Bonhams: Decorative Arts Today, 29 January-4 February at Montpelier Street, London SW7 (0171-393 3900), Mon-Fri 1am-6pm, Sat and Sun 11am-4pm; Sotheby's: Contemporary Decorative Arts, A Selling Exhibition, 5-13 February at 34-35 New Bond Street, London W1 (0171-493 8080), Mon-Sat 10am-4.30pm, Sun 12am-4pm.